Southwest Airlines will start charging customers for checked bags, ending a long-standing policy that distinguished the airline from its competitors. Previously, Southwest allowed passengers to check up to two bags for free, a feature that was central to its marketing. However, starting with flights booked on May 28, customers who haven’t reached the highest levels of Southwest’s Rapid Rewards loyalty program, purchased a business class ticket, or have the airline’s credit card will be required to pay for checked bags. The airline has not yet revealed the exact fees but indicated that the change will help meet customer needs, attract new passengers, and restore profitability for the company and its shareholders, according to CEO Bob Jordan.
Less than a year ago, Southwest Airlines, based in Dallas, revealed that it would be ending another long-standing practice—the open-boarding system that had been in place for over 50 years. Starting next year, the airline plans to switch to assigned seating for its flights.
Southwest Airlines has faced challenges recently and is under pressure from activist investors to improve profits and revenue. In October, the airline reached an agreement with hedge fund Elliott Investment Management to avoid a proxy battle, though Elliott secured several seats on the company’s board.
Last month, Southwest announced it would cut 1,750 jobs, or 15% of its corporate workforce, marking the first major layoffs in the company’s 53-year history. These job reductions, expected to be largely completed by the end of June, are part of a broader effort to reduce costs and transform the company into a more “lean, fast, and agile organization,” according to CEO Bob Jordan.
Southwest’s stock rose more than 9% on Tuesday.
As recently as September’s investor day, executives emphasized the airline’s free checked bags as a key differentiator from competitors. While all other major U.S. airlines charge for checked luggage, Wall Street has long argued that Southwest has been leaving revenue on the table.
In September, Southwest Airlines estimated that charging for checked bags could generate about $1.5 billion annually, but it would lose around $1.8 billion in business from customers who chose Southwest because of its free baggage policy.
On Tuesday, the airline confirmed that it would still offer two free checked bags for Rapid Rewards A-List preferred members and customers with Business Select fares, and one free checked bag for A-List members and other select customers. Passengers with a Rapid Rewards credit card will also receive a credit for one checked bag.
Those who do not meet these criteria will be charged for checked luggage. Additionally, the airline plans to introduce a new, basic fare for its lowest-priced tickets once the changes take effect.
Southwest is betting that the revenue from the bag fees will offset the potential loss of business from travelers who closely compare overall costs. Meanwhile, its competitors see an opportunity to attract these price-sensitive customers.
Delta Airlines President Glen Hauenstein remarked that some customers chose Southwest because of its free checked bags, and now those passengers are up for grabs by other airlines.
However, in the current economic climate, keeping travel affordable may be crucial for staying competitive. The trade war sparked by President Donald Trump has caused instability in U.S. markets and dampened the positive outlook that businesses and consumers had last year.
Delta started the week by lowering its earnings and revenue forecasts for the quarter, citing a decline in consumer and corporate confidence, which is affecting domestic demand. Delta’s stock has fallen 24% this year, while shares of United have dropped 22%, JetBlue 27%, and American Airlines a significant 32%.
On Tuesday, Southwest revised its expectations for the quarter, forecasting a smaller increase in revenue per available seat mile, now expecting a rise of just 2% to 4%, down from a previous estimate of 5% to 7%. The airline also expects its capacity to decrease by about 2%.
Last year, Southwest announced it would introduce assigned seating, charge extra for more legroom, and offer red-eye flights.